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Prices, angry OEMs bode ill for Windows 8 devices, analyst says

Microsoft needs to set low prices for its upcoming Windows 8 Surface PCs and needs something better than selling them online and in Microsoft Stores if it hopes to grab customers, says analyst firm Canalys.

The Surface and Surface Pro feature different flavors of Windows 8 and share similar hardware that behaves like a tablet but includes a cover that doubles as a keyboard that converts the device into a laptop.

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"The information available to date suggests the prices of both will be too high to capture significant market share, and a direct sales approach will prove inadequate. We expect the Surface pads to have a similar impact on the PC industry as the Zune did in portable music players," says Canalys Analyst Tim Coulling.

Zune is Microsoft's music player hardware and software and associated music subscriptions inaugurated in 2006 and now subsumed under Xbox Music. Zune hardware has been discontinued.

Beyond that problem, Canalys sees trouble brewing between Microsoft and hardware vendors who might license Windows 8 to package with their own laptops and tablets. The analyst firm recommends that PC vendors hold off launching Windows 8 bundled with ARM-based devices - a package known as Windows RT. The firm says the vendors should wait until Microsoft rethinks its high license fee for Windows RT software before they ship these products, but doesn't say how much that fee is. Microsoft hasn't announced what it will charge, but some press reports say it could be $50 to $65 per unit.

Plus the hardware vendors are angry that Microsoft is competing directly against them with Surface and Surface Pro, Canalys says. "Marketing, distributing and servicing such hardware profitably is hard," says Chris Jones, Canalys vice president and principal analyst. "Once the Surface makes a material dent in Microsoft's [profit and loss], it will need to repair relationships with PC vendors, who are already preparing lists of demands."

None of this is going to help Microsoft's declining share of the PC market or the tablet market, Canalys says. If Microsoft hopes Windows 8 tablets will cut into iPad sales it may need to subsidize them, the analyst firm says. That subsidy should be $50 to $100 per tablet just "to kick start the market," Canalys says.

Canalys says that in the second quarter of this year PC sales, which include tablets such as iPads, rose 12% over the same quarter last year, with Apple leading the way with 19.4% of the units shipped. The iPad accounted for much of that lead, the firm says. HP, Lenovo, Acer and Dell followed in that order.

Windows-based devices accounted for most PC sales - 73% - but Canalys flagged this as the lowest percentage share the platform has had.

When broken out from general PC sales, tablet shipments rose 75% over last year and account for 24% of all PC sales, the firm says.

Read more about software in Network World's Software section.


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